The Dangers Of Economic Proximity With China

As Taiwan’s legislature prepares to review the controversial Cross-Strait Services Trade Agreement with China next month, apprehensions over the island’s growing economic reliance on China continue to rise. A recent anti-dumping case initiated by a U.S. trade commission, and subsequent decisions on legal representation, highlight the dangers — economic and political — that can arise from a further integration of the two economies.

The United States International Trade Commission (USITC) on February 14 said it had reason to believe that Chinese solar panel companies have used solar cell components built by a third party — Taiwanese firms — to circumvent heavy anti-dumping duties imposed on China in late 2012. U.S.-based SolarWorld Industries America, a subsidiary of the German firm SolarWorld AG, filed the initial complaint in 2012, which resulted in countervailing tariffs averaging 31 percent against Chinese solar makers. However, efforts back then to expand the tariffs so as to include Chinese solar panels made with non-Chinese solar cells were turned down, creating a loophole that China quickly exploited. (Some industry watchers, however, have suggested that SolarWorld is “manipulating U.S. trade procedure in order to prop up its own failing business.” Others argue that the “dumb” trade war could end up hurting the future of solar power.)

So in January 2014, USITC and the U.S. Department of Commerce (DOC) launched an investigation following a renewed complaint by SolarWorld, filed on December 31, 2013, which this time targeted Chinese solar energy firms it said were exploiting the loophole by using components supplied by Taiwanese crystalline silicon photovoltaic (PV) cell makers.

The USITC is scheduled to pass its views to the DOC on February 24. The latter is expected to make preliminary determinations on June 9 regarding the dumping case and to impose duties and anti-dumping tariffs against the Chinese and Taiwanese firms, with a final judgment in October (the department is also scheduled to make a separate preliminary ruling on unfair subsidies to Chinese firms at the end of March).

The Taiwanese firms deny engaging in dumping practices and stated that their prices are 8 percent above the global average and 11 percent above those of Chinese firms.

The case highlights the many problems that could face Taiwan should it further open its high-tech sector to China. While China has positioned itself as an indispensible partner in assembly, it remains a laggard on several fronts, including advanced technologies, for which it depends on countries like the U.S., Japan, and Taiwan. By joining forces with Chinese firms, foreign companies can become collateral whenever unfair subsidizing or dumping accusations are lodged against Chinese firms. By positioning themselves as component makers rather than end-product manufacturers, Taiwanese high-tech firms are especially vulnerable to such an outcome and risk being dragged into cases over which they have little control and in which they did nothing wrong. Or they can get dragged into trade wars between the U.S. and China.

To drive the point home, Yingli Solar and Hanwha SolarOne, two of the Chinese PV module makers involved in the DOC/USITC decision, have “offered” to represent the Taiwanese companies. The Taiwanese firms in question, along with other local solar component makers, have reacted with alarm at the possibility that the U.S. would allow the Chinese firms to represent them, arguing that this loss of sovereignty over their products would prevent them from having their attorneys speak for and defend them. Already, major Taiwanese PV makers including Motech Industries have warned that the case could have a seriously damaging impact on Taiwan’s industry. Taiwanese authorities have weighed in and vowed to do everything in their power to ensure that the Taiwanese firms are represented properly and not by China.

According to statistics from Taiwan’s Bureau of Foreign Trade, exports of Taiwan-made solar cells to China were valued at US$1.02 billion in the first 11 months of 2013, up 66 percent from the previous year. During the same period, Taiwan’s direct solar cell shipments to the U.S. only accounted for 5 percent of Taiwan’s exports, with China accounting for about 45 percent. However, the majority of the cells exported to China ended up being shipped to the U.S., meaning that the U.S. market represents about 50 percent of Taiwan’s total cell exports.

Aware of the dangerous precedent that the case could create, Taiwanese politicians representing southern parts of the country, where most PV suppliers are located, brought up the issue during a U.S. congressional delegation visit to Taiwan led by Ed Royce, Chairman of the U.S. House Foreign Affairs Committee (HFAC), and eight other committee members.

A DOC decision allowing the Chinese firms to represent their Taiwanese counterparts would furthermore have political implications, as this would further erode Taiwan’s image abroad as a sovereign country and play directly into Beijing’s efforts to absorb the democracy of 23 million people.

According to reports, the department was scheduled to decide on February 21 whether to allow the Chinese firms to represent Taiwanese component makers. When contacted, the DOC responded that no decision was to be made on that day.

You're right on the evils of the TPP, but I still say you're presenting a false choice for Taiwan. The "neighbor" you reference certainly says the only acceptable outcome is for their renegade province to reincorporate into the PRC. The reason I threw in the comment about China and corporations is related to that false choice. If you hate the TPP, China will be an enabler to that as they are in their own mercantile way very friendly with those multinationals. How exactly will the TPP impose its will on China?

Taiwan's already all tied up. Economically, without the mainland and the special trade deals in place, they would be dead. That's just a simple fact at this point. That's just a sweet little lever that the mainland can pull any time it wants to. Japan is wrapped up similarly, with China being the place it builds pretty much all it's stuff as well as relying on it for export. Not as severe, but pretty damned close. The US, it relies on China to subsidize the poors who want to consider themselves "middle class". If full prices had to paid for all that stuff, the parasite middlemen would be gone... and that's sadly most of the US economy. Middlemen. No guns need be fired, economics are far more effective. That's really a quite cute bit of historical knowledge. When the economy rips away enough jobs from the working class without sufficient accommodation, revolution is practically guaranteed. And that revolution will not in the end solve any of the problems, but rather it tends to exacerbate them. It takes about an entire generation of reform and tweaking just to get back where you started. Doesn't matter if it's violent or not, in the end it's the same. In today's modern world, the vultures will sweep in in a heartbeat and embed landmines for each and ever step of reform following a fall resulting in a power vacuum. Generally, the only way forward from that is abandonment of any "ideals" that spawned the revolution in the first place. But back to Taiwan, when the time comes, not a single shot will be fired. It will be a business decision to either cement ties and gain better access as a Hong Kong 2.0, or lose everything.

Taiwan could survive without China, just not flourish. You could use the above argument concerning China and Japan/Taiwan and substitute the US. The unwind will negatively affect all countries involved, i.e., everyone.

Just avoid Congee. That stuff's disgusting, and the economy seems heavily based on supply chain (Foxconn), consumerism (shopping mall every five steps in Taipei) and construction (constant building). The housing prices are sky high as well due to people dumping their money in property and flipping - quite a bubble, but rents are cheap.

I believe Tom Woods has covered dumping. Dont remember the product in question (thinking its iodine for some reason - maybe just thinking about it all the time with all this radiation).

Basically, a manufacturer in Europe was dumping his product for half price in the USA to try kill the USA manufacturer. USA bloke simply bought this European made product at half price and sold back to the european market. 12 months later the european bloke as hurting f**cking badly and signed a truce with the USA bloke to not export to eachother's market.

If someone wants to sell below cost price. go for it. it wont last for long. (just like gold wasnt going to last too long below production costs)

Quantum efficiencies are no where near where they need to compete with fossil fuels. So what's the answer? The US brings the costs of using coal, oil and natural gas up, instead of letting the technology catch up.

I don't know what form of technological adaptation could possibly catch up.

Today someone at work was ranting on about how 4G will make our dreams come true, and that we can 'heal the economy' through innovation. I sat there and wondered how we will continue to support a global population with wireless information exchange. Perhaps we can have virtual holidays in 4D environments? Instead of governments with chronicly addicted populations addressing the root cause, we are being fed a phoney socialist ideology for the future. Talking heads are now plainly reiterating this in dribs and drabs. Power-grid restrictions and a two tiered economy will be the end result. 95-99% of the world living with limited power consumption, and the remaining fraction will continue splurging whatever cheap and easy fuels remains, while we play on social-networks and eat some form of genetically modified staple crop.